International Finance, 2020 Winter Problem Set 3: Exchange rate intervention, International Monetary System in history; Sovereign Debt Default, RIvIB Exchange Rate and Current Account in China Assign Date: Jan 10, 2021 Due Date: Jan 15, 2021, 11:59 pm Q1. Use the DD-AA model to examine the effects of a one-lime rise in the foreign price level, P*. If the expected funne exchange rate Ee falls immediately in proportion to P* (in line with PPP), show that the exchange rate will also appreciate immediately in proportion to the rise in P*. If the economy is initially in internal and external balance, will its position be disturbed by such a rise in P*